SECOND HALF OF 2016 ECONOMIC GROWTH OUTLOOK FORESHADOW FOLLOWING BREXIT UNCERTAINTY
The second half of the year is proving not to be any different from previous months. With an earlier 2% prediction, the economic growth outlook remained unchanged. This is according to the July 2016 Economic and Housing Outlook by Fannie Mae’s (FNMA/OTC) Economic & Strategic Research (ESR) Group. However, businesses are expected to face turbulence resulting from the poor production, profit deduction, and high labor costs. All these are effects of the U.S general elections and Brexit uncertainties. Also contributing to the lag of economic growth are net exports, inventory, and nonresidential investment.
Fortunately, predictions convey consumer spending as the driving factor for growth for the remainder of 2016. Residential investment and government spending are expected to be positive contributors towards the 2016 economy growth. Towards the end of the second quartile of 2016, job creation appeared to be on the rise, even though hiring peaked slowly as the year began.
The Brexit Aftermath
As Britain finalizes on its exit plan from the EU, certain financial uncertainties rise among fellow investors. With government bonds declining, treasury returns have plateaued over the previous month. The Chinese Yuan also faces a six–year drop to the dollar. This is according to Doug Duncan Fannie Mae’s Chief Economist. He believes that with the possibility of a US verdict pertaining to an increase of interest rates on hold until elections are held, interest rates will continue declining for some time to come, which is good news for home buyers. There is also new refinance demands as a result of the falling mortgage rates.
The Brexit aftermath on US economy regarding trade is likely to be minimal. In fact, it is presumed to be positive in the mortgage and housing market. The decline in mortgage rates has propped new refinance demand. Following the ERS group projection, a rise of 2.2% in mortgage volume in 2016 from 2015 to $1.75 trillion is up against 2.8% decline forecasted earlier.
The housing expansion is expected to rise gradually in 2016. While existing home sales have increased exponentially over the last nine years, new home sales are withdrawing from maximum growth. All of these factors are taking center stage with the biggest yearly drop in the home sales market since October 2015. Duncan believes that without an exit plan from the upcoming construction, housing inventory is likely to stagnate. This will lead to a rise in home rates and constraining affordability.
Brexit is considered to bring both positive and negative changes to the American housing economy. It’s smart to take advantage where possible, with the rise and fall in market pricing brought by Brexit. ERS predictions are here to help.